Hartford's Ballpark 'Partnership' Would Cost Taxpayers More Than City Bonding

It seemed like a good idea for Hartford to bring in private financing for the Rock Cats stadium but it's not.

From the first moment when Hartford Mayor Pedro Segarra pitched a plan for a Rock Cats ballpark, city-issued bonds were the mayor's preferred way of raising the money. Segarra thought that made the most sense and he was right.

Opponents started howling right away about the need for "private investment" to offset the cost to taxpayers, as if there were some magical way to reduce the injustice of a poor city subsidizing a rich baseball team owner.

So Segarra and the city staff caved in. Under the new plan, a private firm would finance and build the ballpark as part of a larger, $350 million redevelopment and lease the 9,000-fan venue back to the city, which in turn would sublease it to the Rock Cats.

One small detail: The public-private partnership between the city and developer DoNo Hartford LLC is likely to cost city taxpayers hundreds of thousands of dollars more every year than the maligned plan to issue city bonds.

It's too soon to say how much more the partnership will cost taxpayers because the deal is still evolving. But if we compare the city's cost of raising the money through tax-free, general obligation bonds to the lease arrangement proposed by DoNo Hartford, the extra cost of the partnership would average a whopping $1.2 million a year for 25 years.

The reason for the difference is simple. Cities can borrow money at much lower rates than the financing available to private developers. The actual numbers are more complex. We'll get to that in a minute, and the difference won't be as high as $1.2 million.

The really good news is that on Wednesday, when the city and DoNo Hartford LLC present the financial details of the plan to the public and the city council, the scenario will show zero cost to the taxpayers over the life of the lease.

Hill and Segarra believe that the combination of parking revenues, the Rock Cats' $500,000 a year in sublease payments (rising to $600,000) and added property taxes from the development will more than match the city's annual lease bill.

That's nice. But if the city could break even or make a little money with the partnership, it could make more money by bonding because all of the revenue sources remain in place under bonding.

Hill defended the lease deal as a way for the city to shift risks such as delays to the developer, and keep the city's balance sheet stronger — not as a way to save money. But there are ways to insure against risks, and it's hard to see how taking on a long-term lease is better for city finances than taking on bonded debt.

The only reason to avoid bonding is political appearances, and if that's what it takes to get a ballpark built, fine.

I'm not arguing for a different plan or a different developer here. Build it exactly as DoNo Hartford proposed it, every molecule the same. Just sign the papers in a different way — the way Segarra proposed on June 4 — and save money, easier than using coupons at the supermarket (which is part of the plan).

DoNo Hartford isn't the bogeyman. The firm isn't making a big profit on the lease. I spoke to the principals of both firms that formed DoNo Hartford — Centerplan Development Co. and LeylandAlliance — and they said they'd be fine if the city decided to bond for the money as long as they were able to control the design and construction. Easily done.

The Numbers

Here's how the deal shapes up: DoNo Hartford proposed to build a $47.1 million ballpark and lease it to the city for 25 years at 8 percent a year, or $3.8 million. Three times during the lease period, the city's cost would rise by 5 percent, reaching $4.4 million a year in years 16 through 25.

The city's average annual payment would be $4.1 million over the life of the lease.

Under city bonding, if the project qualified as tax-free, general obligation debt, Hartford would pay $2.9 million a year for the same $47.1 million over 25 years, based on its current rating of AA-minus at a basic borrowing rate of 3.66 percent plus fees and add-ons, according to a source who structures these kinds of deals.

Another source in the municipal finance business corroborated the figures.

Hartford would be eligible to refinance if rates were better in 10 years. And at the end of the 25-year deal, under city bond financing, Hartford would own the stadium outright. Under the DoNo Hartford proposal the city would have to buy the beloved old ballpark for $4.7 million.

Hill, the city's chief operating officer, makes two big points that narrow the cost gap between leasing and borrowing. First, because the Rock Cats are a private company, the bonds would not fully qualify as tax-free, he said.

Issuing some taxable bonds would add cost, but probably only about $300,000 a year. An exact figure is not available since the deal doesn't exist.

And second, Hill says the DoNo Hartford lease was just a proposal and is likely to come down in price. "The cost numbers that have been shown have been adjusted based on the ongoing negotiations," he said, in part because DoNo Hartford might be able to line up better terms from its money sources.

That's helpful. Still, Hill doesn't argue with the basic point that the lease is likely to end up more expensive than a city bond issue.

"The spread between the two will shrink," he said. "I don't know that the partnership was an effort to reduce cost, but an effort to reduce risk."

The risk to the citythat leasing avoids, such as a construction delay or a catastrophe, should be covered by insurance and is probably remote anyway. There's no risk of running out of money, for example, and all big projects must have labor bonds and performance bonds as insurance.

Hill and my sources in the industry all agree that the city would probably not realize any savings in operations by leasing, such as maintenance and upkeep of the ballpark — though anything can be negotiated, for a price.

It's possible that DoNo Hartford will actually agree to a lease that's cheaper for the city than bonding, but that would happen only if the firm was willing to take a loss on that lease because it saw profit elsewhere. In that case, it would still be better to bond, and charge the developer more than $1 a parcel for the land.

A different financing method that is still under consideration is revenue bonds through an "infrastructure investment district," under which the city would issue bonds, but added revenues such as property taxes from the targeted zone would pay back the debt. Taxpayers would not be on the hook. But bond underwriters would have to be persuaded that the revenue stream is secure — no easy sell — and anyway, those bonds are more expensive for the city than the taxpayer-backed variety.

Political Failure

Despite all this, general obligation bonding backed by city taxpayers is off the table, Hill said.

Here's the rub: The whole idea of private investment in the ballpark is a sham, and everyone in the business knows it. As I said in a June 26 column, there's no such thing as for-profit investment in a professional sports venue of this sort. Sports stadiums, like schools and roads, serve a public good. They do not generate income on their own.

So what we have is a failure of the political system in a way that's hurting the taxpayers. Segarra clearly thinks the ballpark is a good idea even under a less favorable deal for the city — which is correct.

Many people suggest the mayor didn't want to face a referendum, which could happen if the city were to issue bonds. Hill said that was not a factor. Maybe Segarra didn't want to upset the democratic process by arguing against a public-private partnership, which sounds so nice.

The Rock Cats deal makes sense for the city and the state because it unlocks the power of a neighborhood, unlike the current Rock Cats stadium in New Britain. Whether it reconnects the North End with downtown is questionable, but it will enliven the city. It's too bad Gov. Dannel P. Malloy can't jump in to help, since much of the benefit —sales and income taxes — will accrue to state taxpayers.

Short of showing up with state aid, Segarra ought to speak the truth at Wednesday's public hearing and say the lease agreement would be a pure taxpayer investment by another name.

Building a stadium with public money, as the sparkplug in the middle of a private project that spreads out on land donated by the city, should be enough of a public-private partnership. Segarra knew that on June 4 and he knows it today.